Last week Miller’s Brew Blog revealed that Costco was brewing up three private label beers under the Kirkland private label brand name. Today they’re reporting a fourth one, this time a German Lager. So the news for smaller brands in Costco stores is even more grim. As I opined last week, these Costco Beers will more than likely displace existing beer skus.
The German Style Lager label.
The back label tells the tale.
NOTE: Noble Beer News has posted all four of the labels if anyone is keen to see them. I knew all the illustrations on the labels would have something to do with brewing, but curiously the Amber Ale drawing is of Weyermann Specialty Malts, a malthouse in Bamberg that I visited in November. I wonder if owners Thomas and Sabine are aware of that?
Cringe factor = High
Jay – Don’t you think it is possible that Costco would treat beer like wine?
They are the largest wine retailer in the country not because of sales of Kirkland wines (which generally are a good deal). They support a boatload of SKUs.
Stan – In the sense that anything’s possible, sure I do. From the people I’ve known at Costco (and to be fair that was almost ten years ago) it doesn’t seem likely to me, and nothing they’ve done has shown much eagerness to treat beer like wine thus far. They’ve already had ample opportunity to do so, and yet haven’t. As in many things, I think it comes down to profit. The amount of profit and margins that are built into wine are much higher than in beer. They’ve been able to leverage their buying power to get a better cost for the wine they offer giving them the ability to have inexpensive wine and still make a decent profit.
The way the three-tier system is set up in most states, they’ve been unable to use their size to get a better price than any other retailer (rumors of underhanded dealings aside). The 30-pack that’s sold in many Costcos was created by the big breweries exclusively for Costco stores as a way around the pricing and so they’d have an exclusive product. That only lasted a short time though, because other larger chain retailers realized that the law wouldn’t allow it to remain an exclusive package (at least in California, but I’m sure in other places, too) and so other retailers also started carrying the 30-pack in order to compete. Even regional brewers make loose cases just for Costco (that is a case of 24 bottles with no six-pack carriers) so that their case price can be lower than in other retail stores that buy regular cases, carriers and all.
That is in part why Costco is trying to dismantle the three-tier system in Washington. Flawed though it may be, it has not allowed Costco to bully for better beer pricing the way they can and do for other types of goods, including wine.
While they are unable to get a better price legally for the beer they sell, I don’t see them increasing the number of beer skus they carry simply because the profits aren’t large enough to justify it. Again, it has to do with each store having a fixed number of skus to apportion for every item they sell. They carry some beer now because customers want it and ask for it. If it were more profitable than other products they carry, you can bet dollars to doughnuts that there would be more beer skus.
Wine skus, besides being more profitable, also take up less space on shelves because they can use bins which also allows single bottle sales of high-priced ones. That’s true of spirits, too, by the way. That’s another reason Costco can carry a “boatload” of different wines, but not a similar ship of suds.
If the Costco decision goes to the Supreme Court and they convince our business-leaning conservative court to side with them, then that’s an entirely different matter. At that point I’ll wager they’ll begin embracing beer just as you suggest is possible.
I’m missing the story as to why we shouldn’t be *happy* about this.
Trader Joe’s private label beers are very good, especially those brewed by Gordon Biersch – which the Costco ones look to be.
Trader Joe’s GB-brewed WinterFest Double Bock sells for $5.99/six-pack, while the identical Gordon Biersch beer sells for $7.99-8.99. Trader Joe’s private label beers from Goose Island and Lost Coast are less to my taste, but still not bad given the price.
I’ll be delighted to get a good Gordon Biersch German-style lager at Costco prices.
Ethan – I have no doubt the Kirkland beers that Gordon-Biersch will be making for Costco will be decent tasting beers. I’d expect no less from Dan Gordon. And yes, the ones they make for Trader Joe’s aren’t bad either. That isn’t the point, and it never has been.
What I find unfortunate about these beers is that private label beers can displace other beer brands and keep them off the shelves. The very fact that they exist and take up space on these retailer’s shelves means that another “real” brand is not on that shelf. If all you care about is finding the cheapest possible beer you can, as sadly so many people seem to care only about to the exclusion of all other concerns, then it’s good news. But from the perspective of the health of the entire craft beer industry, it’s not necessarily so good. With Trader Joe’s, who only carries beer they can get exclusively or at a bargain basement price, it’s not as much of a big deal because it’s doubtful they’ll be changing that strategy any time soon. So in their case, they never have carried a wide range of beers so their private label beers aren’t really displacing another brand. The new ones that Gordon-Biersch started making for them merely replaced older private label brands they used to carry. Every single other legitimate brand they carry is either the result of a handshake deal for exclusivity, a special dock” price or because they got a real deal on somebody’s leftover seasonal product.
In the case of Costco, who does a huge amount of volume, any brewery that manages to get authorization for one of their skus will see a big increase in the amount of volume they sell. And as beer generally is a volume business, that makes life much better for any small brewer lucky enough to be anointed with space in their local Costco. Even just being in a few of them can make a big difference to the small brewer. As I discussed in a comment to my earlier post on Costco Beers, there are only so many beer skus to go around. If four of them will soon be these private label beers, no matter how good they taste, four previously carried skus will likely be dropped, and it seems likeliest to me that the ones they choose will be the lesser known local beers.
Costco will absolutely not drop Bud, Miller or Coors from their shelves, and it’s doubtful they’d discontinue Sierra Nevada or Samuel Adams, either. That leaves a few imports and a handful of regional and local beer skus in most Costco stores.
It is possible, as my friend and colleague, Stan, hopes above that Costco might possibly be coming around to beer and start treating it like they do wine, which must include carrying a larger number of different brands. If he is correct (and I know I’m Mr. Doom and Gloom, but I do hope he is) then four additional skus will be a delightful addition to the few they already carry and cause for some small amount of celebrating. If I’m correct, however, it will mean some regional and local brewers may have to start looking around to figure out how to make up the volume they’ll be losing when they’re kicked out of Costco to make room for the new private label Kirkland beers. Personally, I don’t think cheap prices are worth that.
You may be delighted to get a Gordon-Biersch at Costco prices, but in doing so you’ll be inadvertently hurting the brand that’s no longer there and the craft beer industry more generally, at least that’s how I see it. And that’s why I’m not *happy* about this particular story.
Wine skus, besides being more profitable, also take up less space on shelves because they can use bins which also allows single bottle sales of high-priced ones. That’s true of spirits, too, by the way. That’s another reason Costco can carry a “boatload” of different wines, but not a similar ship of suds.
But were this move to indicate increased support for beer wouldn’t it be fun to imagine a new section of bins selling single bottles of beer (granted it would have to be more high end stuff)?
Anyway, first time around I meant to note the smallest brewer represented at our Costco is New Belgium, so I don’t see Kirkland beers being a factor there.
And I certainly wouldn’t call it the perfect wine store. A nice range, good prices, better value than most the wine stores around here (and no badly handled stuff), but Malbec is about as frisky as they get.
It certainly would. I would love to see that happen. It would be great to see bins full of 750 ml beers.
I suspect that your situation — having Fat Tire as the smallest brand represented — is probably the rule rather than the exception. Around my neck of the woods, we see Anchor, Mendocino, Lagunitas and even Drake’s in some of our local Costco stores.
Just to be clear. We don’t see only Fat Tire but always a New Belgium seasonal as well, right now the 2 Below.
The other thing that amazes me about typing this is how much bigger New Belgium is than Anchor or Mendocino. Who would have thunk it?
So Dan Gordon, Gordon Biersch made beers instead of another craft brewer, you still haven’t convinced me that this is bad. The beer is made by a quality brewer and a craft brewer gets the buisness, like I said on the previous post I predicted wash at worst.
I know, I know I saw your Doom and Gloom comment earlier. There isn’t a Costco near me, the few times a year I make it to one, the local craft beers has never been much if any. It sounds like your comment on the other thread that North California is an exception to that. Maybe it’s different for Costco stores depending on region, I really don’t know enough about them to say.
Enjoy reading the site.
I’ll never buy beer at Costco or Trader Joe’s because I prefer live ales that need to be refrigerated. Too man times I’ve purchased a live ale from BevMo and had the contents shoot up to my kitchen ceiling because it had been exposed to warm temperatures. I’m tired of that crap. If a store doesn’t have its live ales in a frdige, I won’t buy beer there. In this case, Costco is marketing a beer that is not a live ale, so I guess it’s OK. I just don’t drink that kind of beer at all.
I appreciate the lengthy response, but I just can’t see the downside for consumers, and that’s who this all is about. Good beer (read: Gordon Biersch) at the best possible prices is what’s best for the consumer, and Costco seems to be delivering it via the own-label brands.
If this were BMC-Corona style crap displacing the craft beer SKUs, that’s one thing – but I just don’t see how it hurts the consumer to get a nicely-made Dan Gordon beer for a lower price.
Maybe the argument is that this is good in the short term, but bad for the long term – that after Costco has put all the craft brewers out of business, then they can raise the price of their Kirkland brand, and that’s all we’ll be able to get. But how is that different from today, where Gordon Biersch beers cost $2 more/six-pack at Safeway than they’re likely to at Costco?
Which GB beer will this be? Sounds like their Dunkel from that description. Any rate…sorry to sidetrack the discussion.
Cheers!
Thomas – Well, I guess we’ll just have to agree to disagree. I don’t think this is terrible, but, playing devil’s advocate, I don’t see it as good, either. Having four different skus of theoretically four different breweries seems better for the industry to me than four skus all made by the same brewer.
Ethan – I don’t necessarily agree that consumers is “who this all is about.” That’s one way to look at it, certainly, but it’s not the only way. I’ve been looking at this from the perspective of what’s best for the craft beer industry as a whole, because that’s my focus on the Bulletin.
And that aside, I also disagree that a good product at the cheapest price is always what’s best for us. That’s certainly the mantra we’ve been fed by advertising and marketing in the consumer- and business-driven society we live in. But there are plenty of times when paying a little bit more for something of quality isn’t necessary the evil folks like Wal-Mart and Costco make it out to be. Take organic food, for example, which I think most people would agree is better to eat if it’s grown in a truly organic way. Because organic food is more expensive to grow, it costs a bit more to buy. But unless you’re willing to spend a little bit more for a tomato that’s better for you, then the price of organic tomatoes will remain high. But if more and more people start spending a little bit more for them, the price will come down and availability will go up. In fact, there used to be literally hundreds of tomato varieties grown all over the world, but factory farms and industrial growing methods have reduced that number significantly and many types of tomatoes are simply extinct now.
Even among craft beer, some is more expensive to make than others, because of either the ingredients or the method and process of brewing it. But if people only ever buy the cheapest one, then we’ll lose out on a lot of very good beers just because they weren’t cheap enough. I think how cheap something is a terrible way to determine its worth or make a decision about whether to buy it, yet I know that motivates most people on a daily basis. That’s why grocery stores always have sales on everything. Studies have shown that people are more inclined to buy something even if it’s only a dime cheaper because of this idiotic notion in their brain that cheaper is better. There may even be a brand whose everyday price is less than the one that’s ten-cents off and they’ll still choose to buy the one on sale, because is has a perception of being cheaper. Sorry, I’m afraid you pressed one of my buttons. I absolutely loathe this idea. Why is it better to have more junk you paid less for than just a few things that may have been more expensive but are better quality and will last longer? I’m perfectly willing to spend a little more for quality beer and never shop for it based on price. I quite frankly think beer is already too cheap and ought to be more expensive. Brewers who make beer that’s every bit as good as fine wine or spirits should be able to command the same prices and reap higher profits, too. They deserve it. In part, it’s this notion that beer has to be as cheap as possible that’s keeping that from happening.